Airlines pursue different hybrid strategies to stay lean

WHILE hybridisation has been touted as the way forward for full-service carriers saddled with traditional cost structures amid growing competition from LCCs, panellists at the CAPA Asia Aviation Summit & LCC Congress presented a mixed bag of responses.

Peter Harbison, executive director of CAPA – Centre for Aviation, said in his opening keynote address on Monday that in the near future, longhaul LCCs will hybridise – offer both low-cost and premium services – and begin to occupy much of intra-regional capacity.

Azran Osman-Rani, CEO of AirAsia X, on the other hand, baulked at the use of the term “hybridisation” when speaking on yesterday’s panel on how full-service carriers under stress should adapt in an LCC world. “This is my bugbear – labelling airlines purely by the services and frills they offer.”

He pointed out that airlines could offer the same features but remain distinct in their costs, and how the product is marketed and sold. “It’s not necessarily hybridisation just for the sake of ticking off boxes (in what the airline offers) but these products are fundamentally different. As long as there are LCC models with cost structures that are more than 50 per cent lower than full-service models, that difference is key.

“It becomes an issue when you start losing that advantage.”

Garuda Indonesia president and CEO, Emirsyah Satar, added that the market is segmented between those who fly full-service and budget, and the industry needs to face the fact that budget traveller growth is higher than premium customers.

“Garuda created Citilink to compete with him,” he quipped, indicating fellow panellist, AirAsia X’s Osman-Rani. “We want to tap both markets, and the key thing is for full-service and LCC to have totally separate managements. People who manage the LCC should not come from Garuda, because (it’s a different culture). They’re strict and disciplined about cost.”

To maintain airlines’ value proposition in an age of LCCs, airlines therefore need to decide which target market to pursue while also keeping an eye on costs.

Asked if he sees full-service carriers narrowing the cost gap by learning from LCCs, Osman-Rani replied: “It depends where you sit on the spectrum of the mass market, the lowest price point on one end and the highest quality premium product on the other. Once you go international, you are competing with many players in the industry, and the problem is when you are stuck in the middle of the spectrum.

“Then neither can you command that product or service premium nor do you have the cost advantage to compete with the mass market.

Citing American legacy carriers as an unfortunate example of airlines with higher cost structures than competitors that provide better-quality products, he elaborated: “Your business model is not going to be sustainable until you’re on one of either end of the spectrum, you’ve got to make a choice.”

Emirsyah agreed: “You’re either low-cost or premium, and it’s hard to survive in between because your branding is important.”

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